Minimal Regulation Key to African Growth

After extensive discussion and debate, the 6th African Resource Bank concluded with the group agreeing to a number of consensus positions on how African nations can better utilize their natural resources to raise the living standards of their people. While there are too many to cover in full, a couple of major themes arose.

The overall consensus was that private business and investment in the natural resources sector – and in general – are critical to development and improving standards of living in African countries. The group agreed that governments should take the steps necessary to encourage entrepreneurship and investment by domestic and foreign sources. While the conferees acknowledged that minimal regulation to prevent corruption and mismanagement are necessary, policies preeminent in many countries go beyond that level to the point where they impede development of those resources and they need to be reformed to facilitate entrepreneurship and investment.

An additional concern was government’s use of revenues garnered from exploitation of natural resources. The group agreed that if private investors exploit national resources some compensation must be paid to the government to hold in trust for the people. However, the extensive history of corrupt use and theft of these revenues led the group to agree that transparency and accountability should be increased greatly to include: public access to the contracts and concessions negotiated between the business and the government; publicly available accounting of royalties, revenues and payments to the government resulting from natural resources; independent auditing of the revenues arising from natural resources and pubic release of the findings; and a publicly released strategic plan for how the revenues will be used and a subsequent, detailed account by the government on how the revenues were spent.

These points highlight many of the conclusions of the Index of Economic Freedom, co-published annually by The Heritage Foundation and the Wall Street Journal, and World Bank’s Doing Business reports. Both find that excessive regulation, taxation, and bureaucracy impede economic growth and development. For instance, the 2009 Doing Business report found Africa to be far behind other regions of the world in adopting policies that facilitate business and investment. According to a presentation on the report, “Entrepreneurs in Africa still face greater regulatory and administrative burdens, and less protection of property and investor rights, than entrepreneurs in any other region.” Such policies lead businesses to flee to formal sector for the informal sector, discourage investment, and reduce job creation.

Corruption compounds these problems and can only be combated through improved transparency and accountability and deregulation to remove opportunities to rent seeking.

The question that arises at the end of conferences is always whether they will make a difference. Considering the fact that the African Resource Bank included members of parliament and government officials among its participants, this conference may. The participants could do far worse than to pursue the above consensus in their work.

Brett D. Schaefer is the Jay Kingham fellow in International Regulatory Affairs at The Heritage Foundation. Schaefer analyzes a broad range of foreign policy issues, focusing primarily on international organizations and sub-Saharan Africa. Read his research.

Join The Discussion

It's great to see more research being done that validates the role of entrepreneurs in the future development of Africa. Too little focus is on this area, despite the fact that exemplary companies exist. For example, there is an awards program Pioneers of Prosperity happening in Kigali Rwanda next week which will highlight some highly successful, role model entrepreneurs from 10 African countries.

I'll be visiting Kenya in January for the first time to focus on entrepreneurs. Please continue to cover African countries' business and economic news and affairs. Tell us more about the Pioneers of Progress awards program.

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